The Economics of Peace and Security Journal, ISSN 1749-852X Westley, Anderson, Kjar, War and the Austrian School p. 28 © www.epsjournal.org.uk – Vol. 6, No. 1 (2011) addressed economic issues of war. War and the Austrian School: Ludwig von Mises Prophetically, he warns against a War necessarily violates the market by government policy of revenge: overriding consumer preferences in and Friedrich von Hayek favor of the preferences of “To retaliate for wrong suffered, governments and their militaries. Christopher Westley, William L. Anderson, and Scott A. Kjar to take revenge and to punish, Likewise, market prices, as signal and does satisfy lower instincts, but guide to resource allocation, are o understand the thoughts of Ludwig von Mises and Friedrich von Hayek on in politics the avenger harms distorted by wartime edicts that war, it is necessary to understand their fundamental views on economics. Like himself no less than the enemy. include price controls, quotas, and Ttheir Austrian School predecessors—Carl Menger, Eugen von Böhm-Bawerk, The world community of labor outright confiscation. It is on these and Friedrich von Wieser—von Mises and von Hayek believed that a free economy is based on the reciprocal foundations that von Mises’s and von was the natural outgrowth of a free society. Free men voluntarily transact with each advantage of all participants. Hayek’s views on war are to be other in free markets, and society itself is an outgrowth of these voluntary Whoever wants to maintain and understood. 1 transactions. Further, free markets serve as a method of allocating society’s scarce extend it must renounce all resources: In particular, prices serve to highlight consumer desires, and entrepreneurs resentment in advance. What are guided to business decisions that support consumer preferences. would he gain from quenching his thirst for revenge at the cost of his own War necessarily violates the market by overriding consumer preferences in favor welfare?” [p. 181] of the preferences of governments and their militaries. Likewise, prices as a guide to resource allocation are distorted by wartime edicts including price controls, quotas, Mises roundly criticizes war socialism—defined as increased state control of the and outright confiscation. It is on these foundation that Mises’s and Hayek’s views economy during wartime—in Germany and Austria, claiming that it hastened their 2 on war are to be understood. final collapse. In both countries, socialists and democrats rushed to fill the void left by the destruction of the monarchy, but neither group held to the classic liberalism The early professional years of Ludwig von Mises that had dominated European political thought for a century. In 1920, Mises wrote an essay, “Economic Calculation in the Socialist Although Mises wrote his best-known works after he came to the United States as a Commonwealth,” in which he laid out a critique of socialism based on his belief that refugee from world war II and the Nazi onslaught, even his pre-world war I writings a pure socialist economy could not exist. Expanded to book length in Socialism demonstrate his commitment to classic liberalism and free markets. In his first major (1922), Mises portrays world war I as total war—a war that required the complete work, The Theory of Money and Credit (1912), Mises argues that free markets and an mobilization of people and resources.4 To Mises, war combined all of the illiberal honest monetary system based on gold would preserve social harmony. Later, in things he most despised, the marshaling of resources along with the activities of Omnipotent Government (1944a), Mises argues that the wave of protectionism once-free individuals to satisfy a “national purpose.” Contrary to beliefs of Marxists, proceeding the outbreak of world war II only heightened the prospects of international Mises did not believe that capitalism had internal contradictions that required periodic conflict, while the liberal (free market–free trade) economies would help preserve wars in order to keep from spiraling into recessions. Rather, Mises believed that peace. periodic wars were themselves contradictions to capitalism and classic liberalism. When world war I broke out in 1914, Mises served in the Imperial and Royal Army of Austria-Hungary. Badly injured, he was given a position on the Scientific Mises, war, and socialist calculation Committee for War Economics, part of the War Ministry. His pro-market, hence not pro-war, views made him unpopular with other members of the Committee. The key to Mises’s views on war and socialist calculation are found in his criticism According to Hülsmann, Mises was a dissenting voice “on the prospective economic of central allocation of goods and government control of methods of production. In benefits of military victory. He definitely did not believe that conquests in the East “Economic Calculation in the Socialist Commonwealth,” Mises made an important 3 would convey any economic advantages for the future Austro-Hungarian economy.” point about the role prices play in resource allocation, and especially in allocating Following the war’s end, which split the former empire of Austria-Hungary into factors of production. For him, prices of final goods are determined by the interplay two small countries, Mises wrote Nation, State, and Economy (1919) in which he of suppliers and demanders in the market, and, following Menger, the prices of these The Economics of Peace and Security Journal, ISSN 1749-852X Westley, Anderson, Kjar, War and the Austrian School p. 29 © www.epsjournal.org.uk – Vol. 6, No. 1 (2011) final goods in turn are imputed to their higher-order factors of production. The value as Germans marched across France and the Low Countries, the von Mises’s fled for of the factors of production used for any class of goods, such as war goods, is the United States, arriving in a country that was soon to go to war as well. compared with the value of those same factors used in the production of other goods. Writing Omnipotent Government (1944a) and Bureaucracy (1944b) during the This allows resource owners to better select how to allocate scarce resources among world war II years, the former identifies National Socialism as a form of collectivism competing products, and allows entrepreneurs to select production methods among not unlike the socialism of the U.S.S.R. Mises declares that modern wars are not the alternate allocations of capital, labor, natural resources, and time. result of “unfettered” capitalism but rather of economic nationalism, promoted both Mises did not specifically address war socialism in his 1920 essay, but neither did by autocratic and democratic governments: he make an exception for it. He believed that government demands upon individuals to carry out a “national purpose” were abhorrent, something he addressed in later “The fateful error that frustrated all the endeavors to safeguard peace was writings. For Mises, war socialism was not a way to rationally direct war production, precisely that people did not grasp the fact that only within a world of pure, which is how its supporters justified it. Instead, he believed that total wars such as the perfect, and unhampered capitalism are there no incentives for aggression and two world wars empower the state in a way that enable it to enforce wartime conquest. President Wilson was guided by the idea that only autocratic production rules.5 governments are warlike, while democracies cannot derive any profit from Mises held this position even when he emphasized the need for Hitler and the conquest and therefore cling to peace. What President Wilson and the other Nazis to be defeated. For example, in Omnipotent Government: The Rise of the Total founders of the League of Nations did not see was that this is valid only within a State and Total War (1944a), Mises wrote that the Nazi regime sought “world system of private ownership of the means of production, free enterprise, and hegemony” in order to enjoy a higher standard of living through conquest: unhampered market economy.” [pp. 4-5] “The essential point in the plans of the German National Socialist Workers’ party In Bureaucracy, Mises argues that government cannot effectively run an economy is the conquest of Lebensraum for the Germans, i.e., a territory so large and rich in the same way as would be done in a free-market system. He blames world war II in natural resources that they could live in economic self-sufficiency at a standard and all of the resulting economic dislocation on the growing power of the state: not lower than that of any other nation. It is obvious that this program, which challenges and threatens all other nations, cannot be realized except through the “Economic interventionism is a self-defeating policy. The individual measures establishment of German world hegemony.” [p. 1] that it applies do not achieve the results sought. They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more Mises further emphasized that war and conquest are not in fact necessary for a undesirable than the previous state they intended to alter. Unemployment of a higher standard of living. A simpler and better way is to practice free trade and have great part of those ready to earn wages, prolonged year after year, monopoly, free institutions: economic crisis, general restriction of the productivity of economic effort, economic nationalism, and war are the inescapable consequences of government “Within a world of free trade and democracy there are no incentives for war and interference with business as recommended by the supporters of the third solution. conquest. In such a world it is of no concern whether a nation’s sovereignty All those evils for which the socialists blame capitalism are precisely the product stretches over a larger or a smaller territory.